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Kohl’s Earnings Rise 19.3%

NEW YORK — The retail powerhouse that is Kohl’s Corp. continued to roll on in the fourth quarter with increases in just about everything but expenses.<br><br>Net income for the period shot up 19.3 percent to $279 million, or 81 cents a...

NEW YORK — The retail powerhouse that is Kohl’s Corp. continued to roll on in the fourth quarter with increases in just about everything but expenses.

Net income for the period shot up 19.3 percent to $279 million, or 81 cents a diluted share, from $233.8 million, or 68 cents, a year ago. EPS in both periods is calculated using what the firm described as the “if converted” method, which includes interest on convertible debt securities.

Wall Street was looking for profits per share at the Menomonee Falls, Wisc.-based hybrid retailer to come in a penny lower, at 80 cents. Before the results were made public after the market closed, investors drove shares of the firm down $1.29, or 2.7 percent, to $46.26 on the New York Stock Exchange Tuesday. This was more or less in line with the Standard & Poor’s retail index, which sank 6.52 points, or 2.6 percent, to end the day at 246.88.

Kohl’s drove sales for the 13 weeks ended Feb. 1 up 16.9 percent to $3.18 billion from $2.72 billion a year ago. Comparable-store sales, though, inched up only 1.2 percent.

Children’s and women’s, especially in intimate apparel and juniors, were the top-performing merchandise categories for the quarter. Men’s and footwear were the toughest, though all of the firm’s major merchandise categories showed comp gains.

While the top and bottom lines continued to dazzle, probably the most impressive financial statement for Kohl’s this quarter came from the selling, general and administrative expenses line. SG&A dropped 40 basis points to 16.6 percent of sales.

“We’re pretty proud of that,” beamed Arlene Meier, the firm’s chief operating officer and treasurer, on a conference call, and especially so, given the quarter’s lackluster comp performance. The improvement came in the distribution area, benefits from credit card operations and belt tightening at the firm’s headquarters, she said. While Kohl’s will continue down the same expense-control path, it remains to be seen if it will be able to duplicate the success.

“It’s unbelievable that they got 40 basis points of SG&A leverage,” noted Bear Stearns analyst Christine K. Augustine.

Merchandise inventories, though, were higher than the analyst was expecting for the quarter. Inventories at the end of the quarter were 35.8 percent higher than a year ago at $1.63 billion. Kohl’s attributed this to more than twice the number of new store openings this month versus a year ago, “significant” additional investments in basics and more clearance inventory.

President Kevin Mansell said, “We’re very comfortable with the content of our inventory and we’re very set to do spring business going forward.

“We do have a significant amount of new spring content and brands that are being introduced and expanded throughout the store this spring, perhaps more newness than in any time in our history,” he added. “All these initiatives address our customers’ desire to continue to see newness and more updated fashion in our assortment.”

For the year, net income advanced 29.8 percent to $643.4 million, or $1.87 a diluted share, from $495.7 million, or $1.45, a year ago. Sales for the 12 months grew by 21.8 percent to $9.12 billion from $7.49 billion in 2001. Comps climbed 5.3 percent.

Last year, the firm added 75 new doors, totalling 457, including units in Boston, Houston, Nashville and Providence. Approximately 80 stores will be added in 2003, with 35 bowing in the first quarter. This Friday, the greater Los Angeles area will see the grand opening of 28 new doors. Each new store this year will require a total investment, on average, of $550,000 to $600,000.

In 2004, Kohl’s is planning 95 to 100 new stores, including entries into the Sacramento, San Diego and Fresno markets.

“We’re all dying to know what they’re going to do to combat copycats on the promotional strategy,” noted Augustine, who conceded that the company would likely play that hand close to its vest. J.C. Penney Co. Inc. has recently been successful with a more promotional strategy.